Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.

Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

Tennant (TNC)

Forward P/E Ratio: 13.7x

As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE: TNC) designs, manufactures, and sells cleaning products to various sectors.

Why Should You Sell TNC?

1. Muted 3% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 2.1% annually
3. Free cash flow margin shrank by 4.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Tennant is trading at $83.25 per share, or 13.7x forward P/E. Check out our free in-depth research report to learn more about why TNC doesn’t pass our bar.

Apogee (APOG)

Forward P/E Ratio: 10.9x

Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ: APOG) sells architectural products and services such as high-performance glass for commercial buildings.

Why Are We Out on APOG?

1. Sales tumbled by 2.4% annually over the last two years, showing market trends are working against its favor during this cycle
2. Anticipated sales growth of 3% for the next year implies demand will be shaky
3. Flat earnings per share over the last two years underperformed the sector average

Apogee’s stock price of $45.18 implies a valuation ratio of 10.9x forward P/E. To fully understand why you should be careful with APOG, check out our full research report (it’s free).

KB Home (KBH)

Forward P/E Ratio: 9.3x

The first homebuilder to be listed on the NYSE, KB Home (NYSE: KB) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.

Why Do We Think KBH Will Underperform?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 20.8% declines over the past two years
2. Sales are projected to tank by 10.4% over the next 12 months as its demand continues evaporating
3. Sales were less profitable over the last two years as its earnings per share fell by 7.5% annually, worse than its revenue declines

At $65 per share, KB Home trades at 9.3x forward P/E. Read our free research report to see why you should think twice about including KBH in your portfolio.

High-Quality Stocks for All Market Conditions

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